3 Stocks for a China First Investment Strategy

China President Xi Jinping delivers a speech in Beijing commemorating the 100th Anniversary of the May Fourth Movement.
Photograph by Andrea Verdelli/Getty Images

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It may be time for investors to consider a China First strategy.

To understand why this may prove to be a critical time for investing in China, it’s useful to look back to the nation’s long history to illuminate the present. This also is particularly useful for anyone trying to better understand how China’s leader, Xi Jinping, seems to be strategically thinking about the trade war with the U.S.

In World War I, China sided with the U.S. and Britain and their allies. When the war ended, China was disappointed that it didn’t gain back land in the eastern part of the country that Japan had taken from Germany. This diplomatic snub gave rise to a nationalistic spirit that swept the nation, inspired by Chinese students protesting their country’s rough treatment by victorious western nations.

The May Fourth Movement, as those events in 1919 are remembered, was a foundational moment in the making of modern China. For one, the Communist Party was founded in 1921. Some of the student protesters probably became government leaders, helping to set in motion generations of change that has helped China become an economic wonder of the modern world.

In late April, at a time when many investors hoped that the trade war between China and the U.S. would soon end, Xi was urging his nation’s citizens to remember the lessons of the May Fourth Movement. Around the country, lectures were delivered and displays were reportedly erected noting that China would never be bullied again. Some will dismiss this as propaganda, but Xi’s speeches—unless he takes to Twitter like President Donald Trump—arguably offer the best insight into his thinking.

Xi’s focus on a pivotal moment in his country’s history, at a time when China is dealing with issues that will heavily influence the nation’s future role in the emerging economic and political world, surely has implications for investors.

A China First strategy anticipates that Chinese citizens will increasingly turn inward—either of their own volition or with Xi’s encouragement—and favor Chinese-made goods over imports to express solidarity with their nation.

China’s government is also making major efforts to modernize its markets and compete with major financial centers in Europe and America. Transparent, liquid capital markets are important to economic growth and innovation. In late July, for example, the Shanghai Stock Exchange created the Star market for technology companies.

To be sure, the China First investment thesis is evolving, and risks are high. Still, three Chinese stocks that are listed in the U.S. offer powerful opportunities in the world’s second-largest economy.

IQiyi
(ticker: IQ) is like
Netflix
(NFLX), and
Weibo
(WB) is like
Twitter
(TWTR).
Pinduoduo
(PDD) has an intriguing e-commerce platform that offers lower prices to shoppers who team with friends and family to buy items.

Each of these three stocks offers investors a way to monetize themes and products that have broad societal appeal, and the timing may prove attractive, as China’s leaders are committed to increasing the size of the middle class. Investors could consider buying the stocks outright, or buying call options that expire in six months to a year as a way to limit money at risk. (Call options increase in value when the underlying security price increases.)

What all of the companies have in common is that they align investors with Xi’s recent exhortations for China’s younger citizens to dedicate themselves to achieving the “Chinese dream” while becoming the main force in their industries.

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